Apartment Vacancies Drop to 3 Year Low, as Rents Rise - Apartment REITs Benefit

Lost in the tragedy that is the U.S. housing market (ex Washington D.C. and Manhattan) is a potential boom time in the rental market. With modest building of new units, and a flood of new renters (many of which were home owners over the past 5 years), we do seem to have the perfect storm brewing. Homeownership rates - which bubbled to nearly 70% at the peak of the mania are STILL above the long term average by a few %.

In stock market terms, the obvious play here are the apartment REITs - however, I think the market has sniffed this out well in advance as the stocks of names such as Equity Residential (EQR),Essex Property (ESS) and AvalonBay Communities (AVB) have been in a steady trend up, with little relent.

Via Bloomberg:

• U.S. apartment vacancies dropped to the lowest in almost three years in the first quarter as the weak homebuying market fueled demand in what is usually a slow period for rentals. The vacancy rate declined to 6.2 percent from 8 percent a year earlier and 6.6 percent in the fourth quarter of 2010, the New York-based research firm said in a report today. The rate was the lowest since it reached 6.1 percent in the second quarter of 2008.
• Unemployment of close to 9 percent and a surge in home foreclosures have pushed many people to rent, driving a rebound in multifamily properties during the past year.Construction of apartments has climbed from a 50-year low on expectations that rents will increase and more people will seek to lease.
• “There is a bias against homeownership at this point, especially if you feel home prices won’t rise and you can wait,” Victor Calanog, chief economist at Reis. “Most of the applications for construction and building loans are for multifamily buildings.”
• Effective rents, or what tenants actually pay, increased in 75 of the 82 markets Reis tracks, to an average $991 a month from $967 a year earlier and $986 in the fourth quarter.
• Landlords’ asking rents also climbed, to $1,047 from $1,027 a year earlier and $1,043 in the previous quarter, according to the report.
• Home ownership in the U.S. dropped from a peak of 69.2 percent in 2004 to 66.5 percent at the end of 2010, with each percentage point representing about 1.1 million households, according to the Census Bureau.
• Developers have stepped up rental projects in anticipation of rising demand.AvalonBay Communities Inc. (AVB), the second-biggest publicly traded U.S. apartment owner, started 11 developments in 2010 with a combined 2,446 apartment units.

Paul Tustain: Gold Is Sending A Signal That The Monetary System Is In Grave Danger

"When a country's public debt exceeds 90% of GDP, that is the magic number. You get to 90%, there is no way back, and that is the number that the U.S. is going through pretty much as we speak. It is also the number which the UK has gone through; all of the PIGS are going through it, as well. They are all going past the 90% debt to GDP ratio. Obviously, Japan is miles past it already. It's up to 200%+. There does not appear, in the historical analysis, to be any great likelihood of getting back from that level of debt safely. There is this strong evidence that above 90% debt to GDP, you will experience either a cataclysmic default or some form of very serious inflation."

So observes Paul Tustain, gold market analyst and founder of BullionVault. In his view, gold serves as a beacon who's price is currently signalling the monteary system is in grave danger. He and Chris discuss the primary factors driving the price of gold and smart strategies for investors looking to build or maintain their holdings of the metal.

Click the play button below to listen to Chris' interview with Paul Tustain (runtime 56m:55s):

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In this podcast, Paul covers:

• The differences between unallocated and allocated buillion and the market problem that led Paul to found BullionVault
• How central banks have recently shifted to become net buyers of gold after a long period of dis-hording bullion, and how this - combined with surging private investment - has sent demand for the metal skyrocketing
• Why we're currently experiencing inflation & deflation at the same time: our monetary policy is pushing more and more money into short-term investments, driving up the price of the things we use today (food, fuel, etc) and and lowering prices of the things we finance over longer periods (like houses)
• Paul's approach to valuing gold and why he sees $3,844/ounce as a defensible (and conservative) estimate of it's appropriate value
• Paul's perspective on silver, gold miners and ETFs
• The purpose and advantages of the allocated custodial bullion purchasing & storage model thatBullionVault offers

Click here to read the transcript

Sun Spots Solar Activity and the Financial Markets Part II

If you have not already read the first part of my analysis on Solar Activity and the Financial Markets, please do so here, as it provides important background for part II.

In that article I provided evidence that rising solar activity into a solar peak is correlated with periods of inflation and that in historical secular commodities bull markets the relative pricing of hard assets to stocks has each time peaked at the solar peak. Commodities are sought after in inflationary times and their prices are a key ingredient in consumer price inflation levels, producing a feedback loop, but given that stocks also usually perform well in inflationary times is there any correlation between stocks and solar cycles?

Below is a long term Dow Jones Industrial Average stock index chart, with solar peaks marked as black spots and solar minimums as red spots. Click here for a larger image.

It is immediately apparent that solar peaks show some correlation with peaks in stocks. In fact, buying at each solar minimum and selling at the next maximum (3-5 years later) has returned average gains of 70%.

An even better strategy would have been buying and holding stocks over multiple solar cycles, being out of the market specifically for just a half-cycle around 1930 and 1970. This strategy returned 10-fold gains each time measured from solar minimum to solar maximum over a multi-decade period. Pattern continuation would imply that the half-solar-cycle from March 2000 to December 2008 set up a potential 10-fold increase from the December 2008 solar minimum to a Dow level of around 85,000 by the 2030s (and that the March 2009 low was the definitive low). If that target seems excessive, then bear in mind that this is the nominal Dow, not real inflation-adjusted, and that such an increase would only be in line with history. That timescale would also fit well with an average secular stocks bull between the 2010s and 2030s, powered by technological paradigm shifts from AI, nanotech, biotech, geoengineering, alternative energy, or other fields. Consider that technological evolution is exponential in pace and the last secular stocks bull delivered internet, mobile phones, DNA indentification, fibre optics and more.

Here is the data supporting the shorter term strategy of buying at solar minimums and selling at the next cycle maximum for an average 70% gain:

Why might stocks consistently outperform in these periods from solar minimum to maximum, and underperform from solar peak down to the next solar minimum, particularly as higher solar activity can cause higher geomagnetism on Earth which affects humans biologically negatively and adversely affects stock market returns (see first article)?

Well, there is a slight lag in geomagnetic peaks after solar cycle peaks, as shown below, and this fits well with why we have seen an economic recession follow each solar cycle maximum in the last century - it corresponds to the peak in geomagnetism. Historically, this post-solar-peak period has been one of human apathy and peace. Conversely, the period into the solar peak has been one of human excitability, pro-action and economic inflation, which fits well with stock market gains.

Source: Susan Macmillan, British Geological Survey

Solar Cycle 24 began around December 2008 with a solar minimum and it is predicted to peak in July 2013. An average gain of 70% for the Dow over this period would translate as 14500 by mid 2013 (which would mean a new nominal all time high).

A recession has closely followed solar peaks for each solar cycle in the last 100 years. The average recession duration is 1 year. The average length of recession-induced stocks bear markets is 1 year 4 months. As the stock market is forward looking, and a leading indicator, we could therefore find the the stock market peaks around the beginning of 2013 and then declines into the solar peak in mid 2013, and then declines through a recession into 2014.

Dow-Commodities ratios and consumer price inflation should peak at extremes at the solar peak (as has occurred each time in the last century), suggesting commodities should push on all the way into mid-2013 whilst stocks lag in the last few months. This final divergence occurred in previous secular inversions in history. If the Dow were at 14500 at this relative peak point, then historical Dow-commodity ratio extreme inversion points can be our guide as to where gold and oil should then be.

The Dow-gold ratio has thus far made a low of 6.86 in this secular bull/bear, so a greater extreme than this needs to be reached. However, based on the 200 year Dow-Gold ratio chart anything beneath this level may qualify as a turning point, but note that levels of 1-2 were hit in the last 2 secular instances.

If Dow-gold bottoms at 6 and Dow is 14500: gold is $2400.
If Dow-gold bottoms at 1 and Dow is 14500: gold is $14500.


Source: Sharelynx.com

The Dow-oil ratio, based on historic extreme turning points, could bottom at 75 or below.

If Dow-oil bottoms at 75 and Dow is 14500: oil is $200.
If Dow-oil bottoms at 50 and Dow is 14500: oil is $300.


Source: Approximity

Understand that Dow 14500 is calculated on AVERAGE historic gains only so should not be given too much emphasis. However, my recent pieces of analysis on the cyclical stocks bull suggest such a 17% gain from current levels to be more pessimistic than optimistic, as a market top. Previously I have reasoned for minimum targets of $2000 gold and $150 oil. The above calclulations therefore suggest we should not be suprised to reach some way higher.

--------------------------------------------------------------------------------

In summary, there is a correlation between stock market performance and solar cycles. A profitable strategy over the last century would have been to buy at the solar minimum and sell at the next solar maximum, and repeat for an average 70% gain in each instance.

An even more profitable strategy would have been to buy and hold over 2-3 decades in between 3 specific half solar cycles. This strategy would have produced 10-fold gains each time, and pattern continuation suggests such a repetition from the solar minimum at the end of 2008 looking out to the 2030s, in line with a further secular stocks bull.

Looking shorter term to the solar peak around mid-2013, stocks should track yet higher, and this implies commodities much higher, as an extreme relative pricing of commodities over stocks should be reached around that solar peak, before a secular inversion.

John Hampson

Gold Is Still Cheap Despite Record Surge: Marc Faber

The Federal Reserve’s money-printing policies continue to make gold an attractive investment even though it has hit a succession of new highs recently, Marc Faber, author of the Gloom Boom & Doom report, told CNBC.

Experts: Gasoline to Hit $4 This Summer as Oil Nears $113 Read more: Experts: Gasoline to Hit $4 This Summer as Oil Nears $113

Oil surged above $112 per barrel Friday following a drop in the dollar and continued jitters about shipments from the world's major oil suppliers.

Benchmark West Texas Intermediate for May delivery jumped $2.45, or 2.2 percent, to $112.75 per barrel in afternoon trading on the New York Mercantile Exchange. Crude oil set new 30-month highs almost every day this week.

Analysts said oil moved higher as the dollar plunged against other major currencies. Oil is traded in dollars and tends to rise when the greenback falls and makes crude cheaper for investors holding foreign currency.

Oil also climbed on fears that violence in Nigeria ahead of the country's national election this weekend could lead to supply interruptions. And in Venezuela a massive blackout appears to have affected some refineries, analysts said. The two countries supply a combined 2 million barrels of oil per day to the U.S.

If crude prices keep rising, experts say, gasoline prices could hit $4 a gallon across the U.S. this summer.

Pump prices have jumped from $3.07 to $3.74 per gallon since the beginning of the year. The swift rise forced the Oil Price Information Service to boost its retail gasoline price forecast to a range of $3.75 to $4 per gallon this year. OPIS chief oil analyst Tom Kloza said it may not be long before the national average tests the all-time record of $4.11 per gallon set in July 2008.

Further price hikes could do serious damage to the U.S. economy, he said. For consumers, "gas prices have more relevance on an emotional level than a lot of other things that they pay for," Kloza said. "People pay more attention to gasoline than phone service, cable TV or other services," Kloza said.

The national average for a gallon of gas is now 88.3 cents higher than the same time last year, according to OPIS, AAA, and Wright Express. It's already above $4 per gallon in California, Alaska and Hawaii, and it's almost there in Connecticut, Washington, D.C., Illinois and New York.

Oil and gasoline prices began a steady rise in February, as the Libyan rebellion shut down the country's daily exports of 1.5 million barrels of oil. Libya produces about 2 percent of world demand, and analysts say making up for those losses will severely reduce the ability of other oil-producing countries to increase production in the future. Saudi Arabia and other OPEC countries are covering some of the shortfall in Libyan crude, which went mainly to refineries in Europe.

Barclays Capital has said that Libya's oil exports probably will be offline for several months. As fighting continues, more traders are going along with that prediction.

"The market is being forced to consider a possible major loss of Libyan barrels probably through the rest of this year and into next," analyst Jim Ritterbusch said Friday.

Experts point to several other factors that have pushed oil and gasoline to record levels. The U.S. economy added hundreds of thousands of jobs this year. That means gasoline demand could increase this year as more workers join the daily commute. And last month's devastating earthquake and tsunami in Japan put further pressure on oil prices. Japan is expected to boost oil and natural gas imports while some of its nuclear power plants are offline.

In other Nymex trading for May contracts, heating oil added 11 cents at $3.3192 per gallon and gasoline futures gained 8 cents at $3.2622 per gallon. Natural gas lost 2 cents at $4.042 per 1,000 cubic feet.

In London, Brent crude rose $3.61 to $125.87 on the ICE Futures exchange.

The Economist - 09th April-15th April 2011

The Economist - 09th April-15th April 2011

English | 124 pages | PDF | 40.90 Mb

The Economist is a global weekly magazine written for those who share an uncommon interest in being well and broadly informed. Each issue explores the close links between domestic and international issues, business, politics, finance, current affairs, science, technology and the arts.
In addition to regular weekly content, Special Reports are published approximately 20 times a year, spotlighting a specific country, industry, or hot-button topic. The Technology Quarterly, published 4 times a year, highlights and analyzes new technologies that will change the world we live in.

read it here

Utah's New Gold Confiscation Law

A few weeks ago, stories came out about Utah's legislation enabling gold and silver as legal tender for state debts. The story excited hard money advocates and those favoring alternative currencies to the currently floundering US dollar. For those who wanted to maintain their purchasing power through hard money and avoiding the constant devaluation of fiat money issued by the federal government, the Utah legislation seemed like a long-awaited first step in that direction. Dreams of other state legislatures ratifying similar legislation danced about in our heads. Would US States really exercise their Constitutional rights by offering a true money alternative to the Federal fiat dollar?

The Utah house had passed legislation making gold and silver legal tender for state debts. Now all that was required was Governor approval. This week, hard money advocates joyously cheered as the legislation received the Governer's signature. But nobody following the development mentioned a key point about this legislation that would turn it from a legitimate hard money system to a State gold confiscation scheme.

Rejoice or Reject?

The poison pill of this legislation turned out to be in the fine print. While gold and money are finally legal tender in Utah for all state debts, such as taxes, they are only valued at the face amount on the coins. Bullion dealers and collectors will tell you that the face amount stamped on a coin issue, whether it be an American Eagle or a Austrian Philharmonic, are really nostalgic deference to a time in which gold and silver were actually the coins of the various realms and their exchange rates to fiat paper money were relatively equal. Since then, the US dollar has lost 95% of its purchasing power while the amount stamped on US gold and silver coins has not changed.

What is the face amount on an American Gold Eagle? $50. So, that is the value you receive for your 1 oz. American gold Eagle when you exchange it for the privilege of paying your taxes and fees in Utah. What is an American gold Eagle really worth? As of the writing of this article, the 1 oz gold coin goes for $1451.28 plus any markup you pay to the dealer.

So for about $1500 in federal fiat greenbacks, you can reduce your Utah state taxes and fees by $50. As my favorite movie ticket counter clerk always says, "Such a deal, such a deal!"

Exchange Rate Follies

This basically amounts to a 1-30 exchange rate in favor of the state of Utah. So let me get this straight. Utah citizens get the right to pay their taxes to the state using one of the very few assets currently maintaining its purchasing power, for the low low exchange fee of 3000%. Such a deal indeed!

Now that exchange rate usury is official in Utah, I can think of several other ways they can take advantage of their citizens. Airport currency exchange booths should immediately begin exchanging 1 Euro for every $30.

State car license tags will not longer be payable in cash, but require that you instead turn in your car to pay the yearly fee. What a boon to the local car market that would be!

Home refinancings will once again boom as homeowners are required to pull out an additional 20% equity every year to cover their property taxes. I am sure mortgage lenders and brokers are rushing to their state legislatures as we speak.

Perhaps, instead of messing around with fiat money devaluation or hard money confiscation at all, we should just attach a promissory note to each birth certificate. Each child will be required to pay their first ten years pay into a general state fund to be used for whatever entitlement legislation makes it through the system. Each paycheck thereafter is taxed at 15% to maintain growth in these programs. Why bother with taxes and exchange fees when you can simply mortgage the person themselves? It would circumvent all the pomp and circumstance of current politics and get straight to the matter; the state is going to give you bread to live on at the expense of your labor, and they will take an extra fee for administering those programs to boot. After all, legislative salaries must stay competitive to the market place!

Will Anyone Actually Use This Law?

As demonstrated, this law amounts to voluntary confiscation of ones gold and silver. At least with a lottery, you have a chance, albeit small, of getting a payout capable of funding your retirement. And in some cases, legalized gambling does lead to the occasional bloke walking out of the casino with money in his pocket. The Utah legal tender (AKA gold confiscation) law offers no such upside.

Of course, the answer is that anyone smart enough to invest in gold and silver are not going to be silly enough to actually exchange their coinage for pennies on the dollar through this program. What then, if the legislation is doomed before it begins, is the point of the charade?

It is pretty obvious to even the casual economic observer that fiat money is devaluing across the world in what appears to be a race to the bottom. Governments are getting closer to defaulting on their debts and rating agencies are actually, in some cases, downgrading sovereign debt. None of them yet has the stones to take on the US debt, but that will come in time.

What the Utah law does is fill two needs. One, the circus of the legislature pretending to pass legislation challenging the supremecy of the US fiat dollar, when actually no such thing has occured. Secondly, it sets precedents for other state legislatures to do the same thing. Precedent is very important in American common law, when the state actually recognizes the value of the precedent and chooses not to ignore it. Now, Utah's gold and silver legal tender laws offer states unwilling to use devalued fiat money to play the ponzi game and kick the can down the road a way to appear to be doing something when in reality they are doing nothing.

And the charade of government efficacy in the US continues ...